Global over-the-counter (OTC) derivatives market slows in the second half of 2006

Growth in the global over-the-counter (OTC) derivatives market slowed in the second half of 2006 to a pace in line with the long-term average rate of increase of the market,according to The Bank for International Settlements (BIS) semiannual statistics.

Notional amounts of all types of OTC contracts rose by 12% to $415 trillion at the end of December (Table 1), after a 24% increase in the first half of the year. Growth remained very strong in the credit segment, where the notional amounts of outstanding credit default swaps (CDSs) increased by 42%, but it fell to rates in the range of 5–11% in other risk categories. Gross market values, which measure the cost of replacing all existing contracts and thus represent a better measure of risk at a given point in time than notional amounts, remained roughly stable at $10 trillion at the end of December 2006. Gross credit exposures due to OTC derivatives, after netting agreements, were also stable at $2 trillion.

The following trends are noted in the BIS statistical release:

Rapid growth in credit default swaps continues

Solid growth in interest rate products

Lower growth in FX derivatives gives mixed evidence for carry trade activity

Slowing growth in commodity and equity derivatives

Market concentration low but increasing


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